<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
OR
|_| Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-23381
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Michigan 38-3313951
(State of Incorporation) (I.R.S.Employer Identification No.)
260 East Brown Street
Suite 200
Birmingham, Michigan 48009
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (248) 644-8838
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
2,639,681 shares of Common Stock, no par value as of July 31, 2000
<PAGE> 2
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGES
<S> <C>
PART I
Item 1. Financial Statements:
Consolidated Balance Sheets (unaudited) as of June 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations (unaudited) for the Three
Months and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the Six Month
Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17-18
PART II
Item 1 Legal Proceedings 19
Item 6 (a) Exhibits Required by Item 601 of Regulation S-K 19
Item 6 (b) Reports on form 8K 19
Signatures 20
Exhibit Index 21
</TABLE>
2
<PAGE> 3
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2000 AND DECEMBER 31, 1999
----------------
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------------ ----------
(In thousands, except share data)
<S> <C> <C>
Cash and equivalents $ 140 $ --
Restricted cash 6,776 4,275
Loans receivable, net 165,050 141,453
Servicing rights 8,631 9,736
Servicing advances 7,027 --
Property and equipment, net 3,254 3,029
Other assets 16,778 10,006
-------- --------
Total assets $207,656 $168,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Advances by mortgagors $ 4,565 $ 4,228
Accounts payable and accrued expenses 6,492 11,810
Deferred revenue 3,211 1,398
Advances under repurchase agreements 122,093 80,469
Subordinated debt, net of debt discount
of $375 and $414, respectively 3,625 3,586
Note payable 46,418 40,747
-------- --------
Total liabilities 186,404 142,238
-------- --------
Minority Interest -- 122
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding -- --
Common Stock, no par value, 10,000,000 shares
authorized; 2,643,074 and 2,539,716 shares
issued and outstanding at June 30, 2000 and
December 31, 1999, respectively 27,485 26,799
Paid-in capital 687 641
Accumulated other comprehensive loss (208) (106)
Unearned stock compensation (1,216) (1,102)
Retained deficit (5,496) (93)
-------- --------
Total stockholders' equity 21,252 26,139
-------- --------
Total liabilities and stockholders' equity $207,656 $168,499
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
----------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
REVENUES 2000 1999 2000 1999
--------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Interest income on loans $ 4,650 $ 2,521 $ 8,768 $ 5,138
Mortgage origination and servicing fees 2,579 888 4,679 1,089
Gain on sale of loans 155 1,126 185 2,550
Other income 358 58 685 104
--------------------------------- ---------------------------------
Total revenues 7,742 4,593 14,317 8,881
--------------------------------- ---------------------------------
COSTS AND EXPENSES
Interest expense 4,232 1,953 7,770 3,794
Provision for credit losses 1,449 72 2,649 135
General and administrative 5,126 1,259 9,294 2,158
Restructuring costs - - 796 -
Other operating expenses 781 845 2,007 1,582
--------------------------------- ---------------------------------
Total costs and expenses 11,588 4,129 22,516 7,669
--------------------------------- ---------------------------------
Income (loss) before income tax expense (3,846) 464 (8,199) 1,212
Federal income tax expense (benefit) (1,340) 160 (2,796) 428
--------------------------------- ---------------------------------
Net income (loss) $ (2,506) $ 304 $ (5,403) $ 784
================================= =================================
Weighted average common shares
Outstanding,
Basic 2,643,521 2,166,680 2,612,963 1,873,378
================================ =================================
Diluted 2,643,521 2,373,081 2,612,963 2,132,994
================================ =================================
Earnings (loss) per share
Basic $ (0.95) $ 0.14 $ (2.07) $ 0.42
================================ =================================
Diluted $ (0.95) $ 0.13 $ (2.07) $ 0.37
================================ =================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
----------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-----------------------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net cash provided (used) by operating activities (46,448) $ 44,612
------- --------
Cash flows from investing activities:
Capital expenditures (707) (130)
------- --------
Net cash used in investing activities (707) (130)
------- --------
Cash flows from financing activities:
Issuance of common stock - 11,978
Advances under repurchase agreements 83,299 28,263
Repayment of advances under repurchase agreements (41,675) (84,218)
Advances on notes payable 103,773 52,915
Repayment of notes payable (98,102) (53,817)
------- --------
Net cash provided (used) by financing activities 47,295 (44,879)
------- --------
Net change in cash and cash equivalents 140 (397)
Cash and cash equivalents, beginning of period
- 1,029
------- --------
Cash and cash equivalents, end of period $ 140 $ 632
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
1. BASIS OF PRESENTATION:
The unaudited consolidated financial statements reflect all adjustments,
consisting only of normal recurring items, which are necessary to present
fairly Bingham Financial Services Corporation's ("Bingham" or "the Company")
financial condition and results of operations on a basis consistent with
that of the Company's prior audited consolidated financial statements. On
February 4, 2000 the Board of Directors of Bingham approved the change in
its fiscal year end from September 30 to December 31. As a result, Bingham's
December 31, 1999 consolidated balance sheet is presented as its previous
year end for comparative purposes. Pursuant to rules and regulations of the
Securities and Exchange Commission applicable to quarterly reports on Form
10-Q, certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles ("GAAP") have been condensed or omitted. These unaudited
consolidated financial statements should be read in conjunction with the
audited Consolidated Financial Statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1999. Results for interim periods are not necessarily indicative of the
results that may be expected for a full year.
2. EARNINGS PER SHARE:
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. At
June 30, 2000 there were potential dilutive shares of common stock from
outstanding stock options and warrants. Had these stock options and warrants
been exercised they would have had an anti-dilutive effect on the net loss
per share calculation. The effect of the anti-dilutive shares is not
included in the earnings per share calculation for the period ended June 30,
2000.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic income (loss) per share calculation:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------
(In thousands, except earnings per share)
Loss Earnings (loss)
Shares per share Shares per share
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share 2,644 $(0.95) 2,167 $ 0.14
Net dilutive effect of:
Options - - 25 -
Warrants - - 181 (0.01)
----- ------ ---- ------
Diluted earnings (loss) per share 2,644 $(0.95) 2,373 $ 0.13
===== ====== ===== ======
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------------------------
(In thousands, except earnings per share)
Loss Earnings (loss)
Shares per share Shares per share
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings (loss) per share 2,613 $(2.07) 1,873 $ 0.42
Net dilutive effect of:
Options - - 35 (0.01)
Warrants - - 225 (0.04)
------ ------ ------ ------
Diluted earnings (loss) per share 2,613 $(2.07) 2,133 $ 0.37
====== ====== ====== ======
</TABLE>
6
<PAGE> 7
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
3. OTHER COMPREHENSIVE INCOME:
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting comprehensive
income. Other comprehensive income refers to revenues, expenses, gains and
losses that under GAAP have previously been reported as separate components
of equity in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ (2,506) $ 304 $ (5,403) $ 784
Other comprehensive income net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gain (loss) during period (31) - (109) -
---------------------------------------------------------------------
Comprehensive income (loss) $ (2,537) $ 304 $ (5,512) $ 784
=====================================================================
</TABLE>
4. ALLOWANCE FOR LOAN LOSSES:
The allowance for possible losses on loans is maintained at a level believed
adequate by management to absorb potential losses from impaired loans as
well as the remainder of the loan portfolio. The allowance for loan losses
is based upon periodic analysis of the portfolio, economic conditions and
trends, historical credit loss experience, borrowers' ability to repay and
collateral values.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-----------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------- -----------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 795 $ 284 $ 274 $ 248
Provision for loan losses 1,449 72 2,649 135
Net losses (1,374) (86) (2,053) (113)
--------------------------------- -----------------------------------
Balance at end of period $ 870 $ 270 $ 870 $ 270
================================= ===================================
</TABLE>
The Company periodically sells portions of its manufactured home loan
portfolio with recourse whereby it is required to repurchase loans that meet
certain delinquency or default criteria. The Company maintains a separate
liability to absorb potential losses on these loans. There were no charges
against the recourse liability in the three months or six months ended June
30, 2000. The balance of that liability was approximately $375,000 at June
30, 2000.
5. DEBT:
At the time of its November 1997 initial public offering Bingham entered
into a subordinated debt facility with Sun Communities, Inc. ("Sun"), which
is subordinated to all senior debt of Bingham. In accordance with the
subordinated loan agreement Bingham issued detachable warrants to Sun
covering 400,000 shares of common stock at a price of $10.00 per warrant
share. The detachable warrants have a term of seven years and may be
exercised at any time after the fourth anniversary of the issuance.
7
<PAGE> 8
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
Bingham also has two demand lines of credit with Sun, each of which provides
for an annual interest rate equal to the one month LIBOR rate plus a spread.
At June 30, 2000, the available borrowings under its demand lines of credit
were $60 million and the amount borrowed was approximately $41.7 million.
In March 2000, Dynex Financial, Inc. ("Dynex Financial") and Bloomfield
Acceptance Company, L.L.C. ("Bloomfield Acceptance"), two of Bingham's
subsidiaries, entered into an amended and restated repurchase arrangement
with Lehman Commercial Paper, Inc. Under this agreement, Dynex Financial and
Bloomfield Acceptance may transfer loans from time to time to Lehman against
the transfer of funds from Lehman. At June 30, 2000, the maximum financing
limits on the facility were $50 million for commercial mortgage and bridge
loans and $200 million for manufactured home and floor plan loans, and the
aggregate amount advanced by Lehman was $121.7 million. The annual interest
rate on the facility is a variable rate of interest equal to LIBOR plus a
spread, dependent on the advance rate and the asset class.
In March 2000, Bingham and Dynex Financial entered into a revolving credit
facility with Michigan National Bank. Under this facility, Bingham and Dynex
may borrow up to $11 million. Interest at a rate of LIBOR plus 2% per year
is payable on the outstanding balance. The outstanding principal balance on
this credit facility as of June 30, 2000 was approximately $4.7 million.
In April 2000, Bloomfield Acceptance and Bloomfield Servicing Company,
L.L.C. ("Bloomfield Servicing") entered into a warehousing credit agreement
with Residential Funding Corporation. Under the credit agreement, Bloomfield
Acceptance and Bloomfield Servicing may borrow up to $50 million to fund the
acquisition and origination of FNMA loans, FHLMC loans, bridge mortgage
loans and similar mortgage loans. Interest at an annual rate of up to LIBOR
plus 250 basis points is payable on the outstanding balance of advances used
to make bridge mortgage loans. Interest at an annual rate of LIBOR plus 125
basis points is payable on the outstanding balance of advances used to make
all other loans under this agreement. At June 30, 2000, Bloomfield
Acceptance and Bloomfield Servicing had not incurred any indebtedness under
this agreement.
At June 30, 2000 and December 31, 1999 debt outstanding was as follows:
<TABLE>
<CAPTION>
June 30, December 31,
--------------------------------- --------------------------------
2000 1999
--------------------------------- --------------------------------
(In thousands)
<S> <C> <C>
Loans sold under repurchase $122,093 $ 80,469
Demand line of credit 41,708 40,747
Servicing advance line of credit 4,710 --
Term loan, net of discount 3,625 3,586
-------- --------
$172,136 $124,802
======== ========
</TABLE>
6. FINANCIAL INSTRUMENTS:
The Company hedges a portion of its loan portfolio as part of its interest rate
risk management strategy and as a condition of the related repurchase agreement,
which finances the portfolio. The Company attempts to hedge the interest rate
risk on its portfolio by entering into Treasury rate locks and forward interest
rate swaps. The Company classifies these transactions as hedges on specific
classes of loan receivables. Any gross unrealized gains or losses on these hedge
positions are an adjustment to the basis of the mortgage loan portfolio and are
used in the lower of cost or market valuation to establish a valuation
allowance.
8
<PAGE> 9
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following tables identify the gross unrealized gains/losses of the
interest rate swaps as of June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
June 30, 2000
---------------------------
Notional Gross Unrealized
Type Amount Reference Rate Gain (Loss)
---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest Rate Swap $ 1,918 10 Year Swap $ (11)
Interest Rate Swap 5,800 10 Year Swap (109)
Interest Rate Swap 7,912 10 Year Swap (34)
Interest Rate Swap 61,443 10 Year Swap (90)
-------- ------
Total $ 77,073 $ (244)
======== =======
<CAPTION>
December 31, 1999
---------------------------
Notional Gross Unrealized
Type Amount Reference Rate Gain (Loss)
---------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest Rate Swap $ 2,232 10 Year Swap $ 9
Interest Rate Swap 1,941 10 Year Swap 6
Interest Rate Swap 3,564 10 Year Swap 16
Interest Rate Swap 1,918 10 Year Swap (14)
Interest Rate Swap 1,108 10 Year Swap 2
Interest Rate Swap 12,984 10 Year Swap 557
Interest Rate Swap 2,540 10 Year Swap 33
-------- ------
Total $ 26,287 $ 609
======== ======
</TABLE>
7. ACQUISITIONS:
In December 1999, the Company completed the acquisition of Dynex Financial
from Dynex Holding, Inc., a subsidiary of Dynex Capital, Inc ("DCI"). The
Company acquired certain manufactured home loans from Dynex Financial, all
of the issued and outstanding stock and all of the rights to DCI' s
manufactured home lending business for approximately $4.0 million in cash
funded by borrowings on the Company's demand lines of credit. Dynex
Financial specializes in lending to buyers of manufactured homes and has
regional and district offices in nine states. In addition Dynex Financial
provides servicing for manufactured home and land/home loans.
The Dynex Financial acquisition was accounted for using the purchase method.
The consideration and acquisition costs for the DFI acquisition were
allocated to the acquired assets and assumed liabilities, resulting in
excess of the fair value of the acquired net assets over the purchase price
of approximately $3.2 million, which was recognized as a reduction in the
amount allocated to purchased loan servicing rights. During the quarter
ended March 31, 2000, Bingham revised its initial estimates of the fair
value of the assets acquired, specifically the manufactured home loan
portfolio associated with the transaction, effectively reducing the excess
of fair value of acquired net assets by $2.0 million. Accordingly, the
Company recognized the revised estimate by retroactively adjusting the
purchase price allocation increase to the amount previously allocated to
purchased loan servicing rights.
In connection with the Dynex Financial acquisition, Bingham recognized
accrued liabilities of $5.0 million related to its plans to close certain of
Dynex Financial's regional and district offices and terminate or relocate
certain of its employees. As of the quarter ended March 31, 2000, Bingham
had revised its estimate of the costs to implement its plan and as a result
has made an adjustment to the purchase price allocation. The change in
estimate has resulted in an increase of $2.5 million in the excess of fair
value over the assets acquired. Bingham has recognized this increase as an
adjustment to the amount previously allocated to purchased loan servicing
rights. Bingham continues to finalize its assessment of the offices and
employees that will be affected and any adjustments resulting from the
completion of the assessment and the resulting actions will result in an
additional adjustment to the purchase price allocation.
For the quarter ended June 30, 2000 there were approximately $465,000 of
costs paid related to these liabilities, $267,000 for severance payments and
personnel costs and $198,000 in costs connected with closed locations
incurred subsequent to the cessation of operations. For
9
<PAGE> 10
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
the six months ended June 30, 2000, there were approximately $1.7 million of
costs paid related to these liabilities, $1.1 million for severance payments
and personnel costs and $600,000 in costs connected with closed locations
incurred subsequent to the cessation of operations.
The following table summarizes pro forma unaudited results of operations for
the Dynex financial acquisition as if it had occurred at the beginning of
each period presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
---------------------------------------------------------
(In thousands, except earnings per share)
<S> <C> <C>
Revenues $ 9,082 $18,959
Income before income taxes 1,003 2,490
Net Income 659 1,627
Basic earnings per share $ 0.30 $ 0.87
Diluted earnings per share 0.28 0.76
</TABLE>
8. MHFC, INC. RESTRUCTURING AND SALE:
Effective January 15, 2000, the Company committed to an exit plan for MHFC,
Inc.'s ("MHFC") manufacturing home loan origination operations as part of
the Company's plan to conduct all of its manufactured home loan origination
operations through Dynex Financial. The exit plan involves termination of
MHFC employees, sale of substantially all MHFC's portfolio loans to Dynex
Financial and sale of MHFC. The Company accrued a restructuring charge of
$796,000, including $396,000 for severance payments and other shut down
costs and a $400,000 loss on the sale of MHFC. As of June 30, 2000,
substantially all of the exit costs accrued, including $186,000 for
involuntary termination benefits, have been incurred and paid. In March
2000, Dynex Financial purchased $66.9 million of loans from MHFC and Bingham
sold all of the stock of MHFC to a purchaser. The purchaser paid Bingham
$400,000 in cash and assumed $2.7 million of debt to Dynex Financial. The
cash portion of the purchase price may be adjusted upward or downward
pursuant to a fairness opinion as to the fair market value of MHFC to be
rendered by a third party appraiser.
9. MERGER WITH FRANKLIN BANK, N.A.:
In March 2000, Bingham announced that it had executed a merger agreement
with Franklin Bank, N.A.. In connection with the proposed merger Bingham has
incurred approximately $1.9 million or acquisition costs. The merger, if
consummated, is expected to be accounted for using the purchase method and
accordingly the acquisition costs have been capitalized and will be included
with the purchase price. In June 2000 Franklin Bank notified Bingham that it
intended to terminate the previously announced merger agreement. Bingham
continues to examine its options regarding the merger and, accordingly, the
acquisition costs have not been charged to expense at June 30, 2000.
10
<PAGE> 11
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information on material
factors affecting the Company's results of operations and significant
balance sheet changes. This discussion should be read in conjunction with
the consolidated financial statements and notes included herein and the
Company's Form 10K for the fiscal year ended September 30, 1999. Results of
operations for the three-month and six-month periods presented are not
necessarily indicative of results which may be expected for the entire year.
RESULTS OF OPERATIONS
Total loan originations for the quarter ended June 30, 2000 increased 35.6%
compared to the quarter ended June 30, 1999. Manufactured home loan
originations continue to increase as Bingham integrates Dynex Financial,
acquired in December 1999. Manufactured home loan originations for the
quarter ended June 30, 2000 were $27.7 million versus $18.6 million for the
comparable quarter in 1999, an increase of 48.9%. Commercial mortgage loan
originations for the three months ended June 30, 2000 were $142.2 million
compared to $106.7 million for the three months ended June 30, 1999, an
increase of 33.3%.
For the six months ended June 30, 2000 total loan originations increased
46.9% to $247.2 million versus $168.3 million for the comparable period in
1999. Manufactured home loan originations increased 122.7% to $66.6 million
for the six months ended June 30, 2000 compared to $29.9 million for the six
months ended June 30, 1999. Commercial mortgage loan originations for the
six months ended June 30, 2000 were $180.6 million compared to $138.4
million for the six months ended June 30, 1999, an increase of 30.5%.
Bingham reported a net loss of $2.5 million for the quarter ended June 30,
2000, compared to net income of $304,000 for the quarter ended June 30,
1999. The loss for the current quarter was due primarily to the addition of
approximately $1.4 million to its loan loss reserve, an approximately 300
basis point increase in its average borrowing rate and a significant
increase in personnel and general and administrative costs for the current
quarter compared to the same period in 1999, primarily as a result of the
acquisition of Dynex Financial in December 1999. Also, during the quarter
ended June 30, 2000 Bingham did not sell any portion of its manufactured
home loan portfolio, while in the comparable period ended June 30, 1999
Bingham sold approximately $10 million in principal balance of its
manufactured home loan portfolio and $80 million in principal balance of its
commercial mortgage loan portfolio, recognizing a gain of $1.1 million.
For the six months ended June 30, 2000 and 1999 Bingham reported a net loss
of $5.4 million and net income of $784,000 respectively. The loss was due
primarily to the addition of approximately $2.6 million to its loan loss
reserve, an approximately 280 basis point increase in its average borrowing
rate and the additional personnel and general and administrative costs
associated with the acquisition of Dynex Financial, Inc. ("DFI") in December
1999. Also, during the six months ended June 30, 2000 Bingham recorded a
gain on the sale of loans of $185,000 on the sale of approximately $40.6
million of its commercial mortgage loan portfolio, while in the comparable
period ended June 30, 1999 Bingham sold approximately $10 million in
principal balance of its manufactured home loan portfolio and $80 million in
principal balance of its commercial mortgage loan portfolio, recognizing a
gain of $1.1 million.
Interest income on loans increased to $4.6 million for the quarter ended
June 30, 2000, or approximately 84.4% over interest income of $2.5 million
in the comparable period in 1999. The increase is primarily due to an
increase in the average outstanding loan receivable balance of $174.3
million for the three months ended June 30, 2000 versus $133.1 million for
the three months ended June 30, 1999, an increase of 30.9%. The increase in
interest income was also the result of an increase in the average yield on
the loan receivable portfolio of 10.5% for the period in 2000 versus 7.4% in
1999. This was because a larger percentage of the loan portfolio consisted
of higher yielding manufactured home loans.
For the six months ended June 30, 2000 interest income on loans increased to
$8.9 million, compared to $5.1 million in the comparable period in 1999.
This represents an increase of approximately 74.5%. The increase is
primarily due to a 32.2% increase in the average outstanding loan receivable
balance, which was $169.1 million for the six months ended June 30, 2000 and
$127.9 million for the same period in 1999. As with the first quarter, the
loan receivable balance for the six month period ended June 30, 2000
included a higher percentage of higher yielding manufactured home loans when
compared to the six months ended June 30,
11
<PAGE> 12
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
1999. This portfolio mix resulted in an increase in the average yield on the
loan receivables of 10.5% for the period in 2000 versus 7.4% in 1999.
Interest expense for the three months ended June 30, 2000 was $4.2 million
compared to $2.0 million for the comparable period ended June 30, 1999, an
increase of 110.0%. The increase in interest expense is primarily a result
of the increase in the average outstanding balance of debt used to finance
the loan receivables and fund operations. Average outstanding debt increased
to $175.0 million for the period ended June 30, 2000 versus $117.9 million
in the comparable period in 1999, an increase of 48.4%. The average
borrowing rate also increased to 9.7% for the current quarter compared to
6.6% for the comparable period in 1999. The large increase is primarily the
result of an increase in the average LIBOR rate of approximately 125 basis
points for the three months ended June 30, 2000 as compared to the same
period ended June 30, 1999 and an increase in the fees associated with the
facilities. Bingham's current financing sources are primarily variable rate
facilities that use the 30 day LIBOR rate as an index.
For the six months ended June 30, 2000 interest expense was $7.8 million
compared to $3.8 million for the comparable period ended June 30, 1999, an
increase of 105.3%. Average outstanding balance of debt increased 41.7% to
$167.1 million for the period ended June 30, 2000 versus $117.9 million in
the comparable period in 1999. The average borrowing rate also increased to
9.3% for the six months ended June 30, 2000 compared to 6.5% for the
comparable period in 1999. The increase is primarily the result of an
increase in the average LIBOR rate and an increase in the fees associated
with the facilities.
The following tables set forth the extent to which the Company's net
interest income has been affected by changes in average interest rates and
average balances of interest earning assets and interest bearing
liabilities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
-----------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST
---------------------------- ----------------------- -----------------------
2000 1999 2000 1999 2000 1999
-------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (In thousands)
Loans $ 174,309 $ 133,054 10.66% 7.58% $ 4,650 $ 2,521
Cash and equivalents 7,385 4,471 3.50 2.83 64 32
-----------------------------------------------------------------------------
181,694 137,525 10.38 7.43 4,714 2,553
---------------------------- ----------------------- -----------------------
Interest-bearing Liabilities
Term loan 4,000 4,000 11.68 11.68 117 117
Revolving line of credit 47,703 22,406 8.39 7.61 1,098 426
Loans sold under repurchase 123,315 91,471 9.77 6.17 3,017 1,410
----------------------------------------------------- -----------------------
175,018 117,877 9.67 6.63 4,232 1,953
-----------------------------------------------------------------------------
Interest rate spread 0.71 0.80
Excess average earning assets $ 6,676 $ 19,648 10.38% 7.43%
=====================================================
Net interest margin 1.06% 1.75% $ 482 $ 600
===============================================
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
----------------------------------
INCREASE VARIANCE DUE TO:
----------------------
(DECREASE) VOLUME RATE
----------------------------------
<S> <C> <C> <C>
Interest-earning assets: $ 2,129 $ 1,104 $ 1,025
Loans 32 25 7
Cash and equivalents ----------------------------------
2,161 1,129 1,032
----------------------------------
Interest-bearing Liabilities - - -
Term loan 672 628 44
Revolving line of credit 1,607 784 823
Loans sold under repurchase ----------------------------------
2,279 1,412 867
----------------------------------
Interest rate spread
Excess average earning assets
$ (118) $ (283) $ 165
Net interest margin ==================================
</TABLE>
12
<PAGE> 13
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
-----------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST
---------------------------- ----------------------- -----------------------
2000 1999 2000 1999 2000 1999
-------------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (In thousands)
Loans $ 169,132 $ 127,913 10.37% 8.03% $ 8,768 $ 5,138
Cash and equivalents 6,572 4,601 4.15 2.09 137 48
-----------------------------------------------------------------------------
175,704 132,514 10.14 7.83 8,905 5,186
-----------------------------------------------------------------------------
Interest-bearing
Liabilities
Term loan 4,000 4,000 11.68 11.68 117 117
Revolving line of credit 45,101 20,669 8.99 7.45 2,140 770
Loans sold under repurchase 118,003 92,175 9.56 6.06 5,513 2,907
-----------------------------------------------------------------------------
167,104 116,844 9.30 6.49 7,770 3,794
-----------------------------------------------------------------------------
Interest rate spread
0.84 1.33
Excess average earning $ 8,600 $ 15,670 10.14% 7.83%
assets
=================================================================
Net interest margin 0.65% 1.05% $ 1,135 $ 1,392
===============================================
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
----------------------------------
INCREASE VARIANCE DUE TO:
----------------------
(DECREASE) VOLUME RATE
----------------------------------
(In thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans $ 3,630 $ 2,882 $ 748
Cash and equivalents 89 65 24
----------------------------------
3,719 2,947 772
----------------------------------
Interest-bearing
Liabilities
Term loan - - -
Revolving line of credit 1,370 1,290 80
Loans sold under repurchase 2,607 1,800 807
----------------------------------
3,977 3,090 886
----------------------------------
Interest rate spread
Excess average earning
assets
Net interest margin $ (258) $ (143) $ (114)
==================================
</TABLE>
Mortgage origination fees represent fees earned on commercial mortgage loans
originated and placed with outside investors. For the quarter ended June 30,
2000 Bingham originated $122.1 million in commercial mortgage loans that
were placed with outside investors and recorded origination fees of $608,000
compared to $92.7 million in loan originations and $794,000 of placement and
origination fees for the comparable three month period in 1999. For the six
months ended June 30, 2000, Bingham originated and placed $143.2 million of
commercial mortgage loans and recorded origination fees of $799,000 versus
$121.8 million of originations and $862,000 of placement and origination
fees for the comparable period in 1999. The increased loan originations and
decreased origination fees for both the quarter and six months ended June
30, 2000 are indicative of the larger average loan balances originated on
which a lower average fee percentage is charged.
Servicing fees collected for the three months and six months ended June 30,
2000 were $2.0 million and $3.9 million, respectively, as compared to
$94,000 and $227,000, respectively, for the three months and six months
ended June 30, 1999. The large increase was the direct result of an increase
in the average principal balance of approximately $1.1 billion of
manufactured home loans serviced for others and an increase in the average
principal balance of approximately $450 million of commercial mortgage loans
serviced for outside investors. The increases were primarily the
result of the acquisitions of Dynex Financial in December 1999, which had a
servicing portfolio balance of $980 million and of Hartger & Willard
Mortgage Associates, Inc., an originator and servicer of commercial mortgage
loans, in June 1999, which had a servicing portfolio of $440 million. The
Company also sold approximately $100 million of its manufactured home loan
portfolio in December 1999 and approximately $37 million of its commercial
mortgage loan portfolio in June 1999 while retaining the servicing rights.
Gain on sale of loans represents the difference between the proceeds from
the sale of loans and the allocated carrying cost of the loans sold or
placed with outside investors. The gain is also net of required reserves for
the potential loss due to repossession and ultimate charge-off of loans sold
with recourse that are required to be repurchased. For the quarter ended
June 30, 2000 Bingham sold approximately $40.6 million of commercial
mortgage loans and recorded a gain on loans sold or placed with outside
investors of $155,000 compared to sales of $80.0 million of commercial
mortgage loans and $10 million of manufactured home loans and a gain of $1.1
million for the quarter ended June 30, 1999.
For the six months ended June 30, 2000 Bingham sold or placed approximately
$47.4 million of commercial mortgage loans resulting in gains on loan sales
of $185,000 versus sales or placement of $80.0 million of commercial
mortgage loans and $15.4 million of manufactured home loans and gains on
loans sold of $2.6 million for the six months ended June 30, 1999. Included
in the gain on loans sold for the six months ended June 30, 1999 was a
recovery of $1.15 million related to the valuation of the loan portfolio and
related hedge positions.
13
<PAGE> 14
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
Provision for credit losses is recorded in amounts sufficient to maintain an
allowance at a level considered adequate to cover losses from liquidating
manufactured home loans and loans sold with recourse. Provision for credit
losses increased to $1.4 million and $2.6 million, respectively, for the
quarter and six months ended June 30, 2000, compared to $72,000 and
$135,000, respectively, for the same periods in 1999. The large increases
are primarily related to a 234% increase in average outstanding principal
balance of manufactured home loans which was $128.6 million at June 30, 2000
as compared to $38.5 at June 30, 1999. The provision increases are also
affected by the increase in repossessed and non-performing manufactured home
loans, which were $3.6 million at June 30, 2000 versus $982,000 at June 30,
1999.
General and administrative and other operating expenses totaled
approximately $5.9 million for the current quarter. This was an increase of
approximately 181% or $3.8 million over general and administrative expenses
of $2.1 million in the comparable quarter in 1999. The largest part of the
increase is directly attributable to personnel costs related to the
acquisition of Dynex Financial. The acquisition increased the number of
full-time employees to 214 and personnel costs of $4.1 million for the
current quarter as compared to 56 full time employees and $994,000 for the
quarter ended June 30, 1999, an increase in personnel costs of 312%. The
acquisition also increased the number of leased office locations for the
origination and servicing of manufactured home loans to six at June 30, 2000
as compared to one at June 30, 1999.
For the six months ended June 30, 2000 general and administrative and other
operating expenses totaled approximately $11.3 million versus $3.7 million
for the comparable period ended June 30, 1999, an increase of 205%. The
largest part of the increase is directly attributable to the acquisition of
Dynex Financial. Personnel costs for the six months ended June 30, 2000 were
$7.9 million as compared to $2.0 million for the six months ended June 30,
1999, an increase of 295%.
As part of the Company's plan to conduct all of its manufactured home loan
origination operations through Dynex Financial, in March 2000 DFI purchased
$66.9 million of loans from MHFC and Bingham sold MHFC to a purchaser. The
purchaser paid Bingham $400,000 in cash and assumed $2.7 million of debt to
Dynex Financial. The cash portion of the purchase price may be adjusted
upward or downward pursuant to a fairness opinion as to the fair market
value of MHFC to be rendered by a third party appraiser. The Company now
conducts all of its manufactured home loan origination activities through
Dynex Financial.
As a result of the plan to sell MHFC, for the six months ended June 30, 2000
the Company incurred approximately $396,000 in non-recurring costs to shut
down the operations of MHFC. These costs include approximately $322,000 in
salaries and severance pay to terminated employees and $74,000 of general
and administrative costs. The Company also recognized a $400,000 loss on the
ultimate disposition of MHFC' s net assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity represents the ability to meet financial obligations when due.
Bingham expects to meet its short-term liquidity requirements through
working capital provided by operating activities. Bingham expects to meet
its long-term liquidity requirements through a combination of additional
equity offerings, draws on its revolving lines of credit, advances under its
master repurchase agreement, whole loan sales, loan participations and
possible future periodic securitizations of its loan portfolio.
During the six-month period ended June 30, 2000 total borrowings increased
to $172.1 million from $124.8 million at December 31, 1999. The increased
borrowings were primarily for the funding of new loan originations and
operations. The increase is net of approximately $35.6 million in proceeds
from loan sales used to repay revolving lines of credit.
During the six month period ended June, 2000 Bingham increased its available
borrowings under its repurchase facility to a total of $250 million. $200
million of the facility is allocated for the financing of manufactured home
loans and $50 million is allocated for the origination of commercial
mortgage loans.
In the current fiscal year, Bingham has experienced a substantial increase
in capital expenditures associated with the acquisition and integration of
Dynex Financial and the pursuit of a merger with Franklin Bank. The Dynex
acquisition was completed with the objective of increasing and improving
Bingham's ability to originate manufactured home loans. This increased
activity requires a larger capital base for successful long-term operations.
The pursuit of the Franklin Bank merger has as one objective the ability to
utilize Franklin Bank's capital base to support Bingham's increased lending
activities. Bingham's future liquidity and capital requirements depend on
numerous factors, including its ability to sell or securitize loans and the
necessity to repurchase loans under its master repurchase agreement.
The majority of Bingham's loan portfolio is currently financed by advances
under its master repurchase agreement. Under that agreement, commercial
mortgage loans may stay on the facility for up to nine months and
manufactured home loans may stay on
14
<PAGE> 15
BINGHAM FINANCIAL SERVICES CORPORATION
---------
the facility for up to ten months. Loans that remain financed on the
facility longer than these time frames are required to be repurchased.
Unless otherwise removed from the repurchase facility, $23.7 million in
commercial mortgage loans and $98.4 million in manufactured home loans will
be required to be repurchased in the next twelve months. Bingham expects to
remove the loans from the repurchase facility with proceeds from either
whole loan sales or securitizations. Bingham has not executed a manufactured
home loan whole loan sale or securitization since December 1999, but expects
to complete a whole loan sale of approximately $115.0 million in loans in
mid-August 2000. If Bingham is unable to execute this planned loan sale or
other whole loan sales or securitizations in the short term, it will be
necessary to renegotiate the terms of the existing repurchase facility,
finance the loans on its other lines of credit up to their available limits
or find additional financing sources. Bingham currently anticipates that its
existing lines of credit and available funds, together with the proceeds of
the planned whole loan sale, will be sufficient to meet its anticipated
needs for working capital and capital expenditures through the end of 2000,
even if it is required to repurchase loans under the repurchase facility and
if it is not able to renegotiate the terms of that facility. Even if Bingham
is able to meet its short-term capital needs from the sources described
above, it may not be able to meet its long-term capital needs thereafter
unless Bingham is able to access additional capital through a merger or
joint venture with another entity that will supply capital or through the
sale of debt and equity securities to investors.
Additional financing and additional equity or debt capital may not be
available to Bingham on favorable terms, or at all, and Bingham may not be
able to renegotiate its master repurchase agreement. If adequate funds are
not available on acceptable terms, under the repurchase agreement or
otherwise, Bingham may not be able to continue or expand its business
operations, which would seriously harm its business, results of operations
and financial condition.
Bingham has also entered into a demand line of credit agreement for the
purpose of funding required principal, interest, taxes and insurance
advances on approximately $994.1 million of manufactured home loans that are
serviced for outside investors. The advances on the facility are required to
be paid down by the fifteenth day of the month following the advance. This
facility has an available borrowing limit of $11 million and an annual
interest rate equal to LIBOR plus a spread.
LOANS RECEIVABLE
Net loans receivable increased $23.6 million from $141.5 million at December
31, 1999 to $165.1 million at June 30, 2000. For the six months ended June
30, 2000 commercial mortgage loans originated and held for sale were $46.5
million and manufactured home loan originations were $62.0 million. New loan
originations were offset by the securitization and sale of approximately
$37.1 million in commercial mortgage loans, loan participations of $10.4
million and the sale of approximately $3.7 million of manufactured home
loans sold in connection with the sale of MHFC.
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term of the manufactured home and
commercial loan portfolio:
<TABLE>
<CAPTION>
June 30, 2000
-------------------------------------------------------------------------------------------------------------------------
Manufactured Home Commercial
-------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Principal balance loans receivable, net $ 126,768 $ 38,282
Number of loans.................. 3,146 18
Average loan balance............. $ 41 $ 2,106
Weighted average loan yield...... 11% 9.6%
Weighted average initial term.... 25 years 10 years
</TABLE>
Delinquency statistics at June 30, 2000 for the manufactured home loan
portfolio are as follows:
<TABLE>
<CAPTION>
Days delinquent
---------------------------------------------------------------------------------------
Number of Greater
Loans 31-60 61-90 Than 90 Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Manufactured home loans 3,146 3.5% 1.4% 1.7% 6.6%
Manufactured home loans
sold with recourse 1,209 3.1 0.7 0.7 4.5
------------------------------------------------------------------------------------------------
4,355 3.4% 1.2% 1.4% 6.0%
================================================================================================
</TABLE>
15
<PAGE> 16
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
<TABLE>
<CAPTION>
Days delinquent
-----------------------------------------------------------------------------------------------
Gross Principal Greater
Balance 31-60 61-90 than 90 Total
--------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Manufactured home loans $128,557 2.3% 1.3% 1.4% 5.0%
Manufactured home loans
sold with recourse 38,501 3.2 0.9 0.9 5.0
----------------------------------------------------------------------------------------
$167,058 2.9% 1.2% 1.3% 5.4%
======== ============= ========== ========== ==========
</TABLE>
There were no delinquent commercial mortgage loans at June 30, 2000.
YEAR 2000 READINESS
No disruptions in Bingham's systems, service to customers or operations were
experienced as a result of the year 2000, referring to the date rollover
from December 31, 1999 to January 1, 2000. The year 2000 issue is a result
of computer programs being written using two digits rather than four to
define the applicable year. Any of the computer programs used by Bingham
that have time-sensitive software could have recognized a date using "00" as
the year 1900 rather than the year 2000. This could have resulted in system
failure or miscalculations, had management not made the year 2000
preparations disclosed previously in its filings with the Securities and
Exchange Commission. Bingham expensed all costs associated with its
preparations for the year 2000. The total cost of the year 2000 project
since it was begun in 1998 was approximately $45,000.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including statements relating to the Company's strategic objectives and
future performance, which are not historical fact, may be deemed to be
forward-looking statements under the federal securities laws. There are many
important factors that could cause the Company's actual results to differ
materially from those indicated. Such factors include, but are not limited
to general economic conditions; interest rate risk; demand for the Company's
services; the impact of certain covenants in loan agreements of the Company;
the degree to which the Company is leveraged; the continued availability of
the Company's credit facilities; the risk of margin calls on the Company's
credit facilities and hedge positions; the performance of the Company's
subsidiaries; and other risks identified in the Company's Securities and
Exchange Commission filings. In addition, past financial and operational
performance of the Company is not necessarily indicative of future financial
and operational performance.
16
<PAGE> 17
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table shows the Company's expected maturity dates of its
assets and liabilities. For each maturity category in the table the
difference between interest-earning assets and interest-bearing liabilities
reflects an imbalance between repricing opportunities for the two sides of
the balance sheet. The consequences of a negative cumulative gap at the end
of one year suggests that, if interest rates were to rise, liability costs
would increase more quickly than asset yields, placing negative pressure on
earnings.
<TABLE>
<CAPTION>
Maturity
----------------------------------------------------------------
0 to 3 4 to 12 1 to 5 Over 5
Months Months Years Years Total
-------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents $ 140 $ - $ - $ - $ 140
Restricted cash 1,684 5,092 - - 6,776
Loans receivable 6,316 17,974 89,470 51,291 165,051
Servicing rights 505 1,393 5,329 1,404 8,631
Servicing advances 6,232 795 - - 7,027
Other assets 3,779 8,745 5,094 2,413 20,031
----------------------------------------------------------------
TOTAL ASSETS $ 18,656 $ 33,999 $99,893 $ 55,108 $207,656
================================================================
Liabilities:
Advances by mortgagors $ 1,142 $ 3,423 $ - $ - $ 4,565
Accounts payable and accrued expenses 1,077 2,948 2,467 - 6,492
Deferred revenue 77 245 2,266 623 3,211
Advances under repurchase agreement 1,837 12,088 69,265 38,903 122,093
Subordinated debt (19) (57) 3,701 - 3,625
Notes Payable 17,777 28,641 - - 46,418
Other liabilities - - - - -
----------------------------------------------------------------
TOTAL LIABILITIES 21,891 47,288 77,699 39,526 186,404
----------------------------------------------------------------
Stockholders' Equity
Common stock - - - 27,485 27,485
Paid-in-capital - - - 687 687
Accumulated other comprehensive loss - - (208) - (208)
Unearned stock compensation (61) (182) (769) (204) (1,216)
Retained deficit - - - (5,496) (5,496)
----------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 21,830 $ 47,106 $ 76,722 $ 61,998 $207,656
================================================================
Reprice difference $ (3,174) $ (13,107) $ 23,171 $ (6,890)
Cumulative gap $ (3,174) $ (16,281) $ 6,890 $ -
Percent of total assets (1.53%) (7.84%) 3.32%
</TABLE>
Management believes the negative effect of a rise in interest rates is
reduced by the anticipated short duration of the Company's loan receivables.
Management intends that the loan receivables will be securitized or sold as
part of a whole loan sale prior to the end of 2000. Proceeds from the
securitization or whole loan sales would be used to pay down the
corresponding debt. If the
17
<PAGE> 18
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
Company were unable to securitize or sell the loans it would be necessary to
renegotiate the master repurchase agreement to extend the maturity date of
the advances under repurchase. The instruments held by the Company are held
for purposes other than trading.
The Company also currently manages interest rate risk through the use of
forward interest rate swaps to hedge a portion of the fixed rate loans in
both the commercial loan and manufactured home loan portfolios. Bingham uses
these instruments in an attempt to reduce risk by essentially creating
offsetting market exposures.
A forward interest rate swap is an obligation to enter into a swap or cash
settlement on a future date for the difference between the market rate on
that date and an agreed upon swap rate. This transaction is similar to a
Treasury rate lock in that it allows Bingham to lock in a rate starting in
the future. The difference is that Bingham will be locking in a future swap
rate, not a forward treasury yield. A forward interest rate swap allows the
positive or negative effect of a change in the value of the underlying loans
to be offset by the positive or negative payment on the settlement of the
hedging transaction. If interest rates rise the value of the loan portfolio
will have decreased but the decrease will be offset by an increase in the
value of the hedge equal to approximately the present value of decrease in
value of the hedged loan portfolio. If interest rates were declining the
reverse would hold true; the value of the loan portfolio will increase and
be offset by a decrease in the value of the swap approximately equal to the
present value of the hedged loan portfolio increase.
The following table shows the Company's financial instruments and derivative
instruments that are sensitive to changes in interest rates, categorized by
expected maturity and the instruments' fair values at June 30, 2000.
<TABLE>
<CAPTION>
Contractual Maturity
--------------------------------------------------------
2000 2001 2002 2003
--------------------------------------------------------
<S> <C> <C> <C> <C>
Interest sensitive assets:
Loans receivable $ 17,787 $ 16,051 $ 13,980 $ 15,774
Average interest rate 10.66% 10.69% 10.75% 10.75%
Interest bearing deposits
7,385 - - -
Average interest rates 3.50%
- - -
Interest Rate Swaps
- - - -
Average interest rate
- - - -
--------------------------------------------------------
Total interest sensitive assets $ 25,172 $ 16,051 $ 13,980 $ 15,774
========================================================
Interest sensitive liabilities:
Borrowings:
Advances under repurchase agreements $ 91,569 $ 30,524 $ - $ -
Average interest rate 9.56% 9.56% - -
Subordinated debt - - - -
Average interest rate - - - -
Note payable 9,165 4,021 3,502 3,951
Average interest rate 8.99% 8.99% 8.99% 8.99%
--------------------------------------------------------
Total interest sensitive liabilities $ 100,734 $ 34,545 $ 3,502 $ 3,951
========================================================
<CAPTION>
----------------------------------
Total
2004 Thereafter Fair Value
----------------------------------
<S> <C> <C> <C>
Interest sensitive assets:
Loans receivable $ 16,015 $ 86,903 $166,510
Average interest rate 10.46% 10.76% 10.66%
Interest bearing deposits - - 7,385
Average interest rates - - 3.50%
Interest Rate Swaps - 77,073 77,073
Average interest rate - 7.28% 7.28%
----------------------------------
Total interest sensitive assets $ 16,015 $163,976 $250,968
==================================
Interest sensitive liabilities:
Borrowings:
Advances under repurchase agreements $ - $ - $122,093
Average interest rate - - 9.56%
Subordinated debt - 3,625 3,625
Average interest rate - 11.68% 11.68%
Note payable 4,011 21,768 46,418
Average interest rate 8.99% 8.99% 8.99%
----------------------------------
Total interest sensitive liabilities $ 4,011 $ 25,393 $172,136
==================================
</TABLE>
18
<PAGE> 19
BINGHAM FINANCIAL SERVICES CORPORATION
----------------
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various claims and legal proceedings
arising out of the normal course of business, none of which in
the opinion of management are expected to have a material
effect on the Company's financial position.
ITEM 6. (A) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
EXHIBIT NO. DESCRIPTION
4.1 Form of Registration Rights Agreement dated April
27, 1999 with respect to an aggregate of 800,330
shares
4.2 Bingham Financial Services Corporation Second
Amended and Restated 1997 Stock Option Plan
10.1 Warehousing Credit and Security Agreement dated as
of April 1, 2000 among Bloomfield Servicing
Company, L.L.C., Bloomfield Acceptance Company,
L.L.C. and Residential Funding Corporation
10.2 First Amendment dated as of July 17, 2000 to
Warehousing Credit and Security Agreement dated as
of April 1, 2000 among Bloomfield Servicing
Company, L.L.C., Bloomfield Acceptance Company,
L.L.C. and Residential Funding Corporation
10.3 Security Agreement dated December 13, 1999 between
Sun Communities Operating Limited partnership and
Bingham
10.4 Second Amended Demand Promissary Note dated
December 13, 1999 executed by Bingham in favor of
Sun Communities Operating Limited Partnership
10.5 Employment Agreement dated January 1, 2000 between
Bingham and Ronald A. Klein
10.6 Second Amended and Restated Master Repurchase
Agreement dated as of March 15, 2000 among Lehman
Commercial Paper Inc., Bloomfield Acceptance
Company, LLC, MHFC, Inc., and Dynex Financial,
Inc.
10.7 Amendment No. 1 dated March 16, 2000 to the Second
Amended and Restated Master Repurchase Agreement
10.8 Credit Agreement dated March 31, 2000 among
Bingham, Dynex Financial, Inc., and Michigan
National Bank
10.9 Secured Promissary Note dated March 31, 2000
executed by Bingham and Dynex Financial in favor
of Michigan National Bank
10.10 Security Agreement dated March 31, 2000 between
Michigan National Bank and Dynex Financial, Inc.
10.11 Security Agreement dated March 31, 2000 between
Michigan National Bank and Bingham
27 Financial Data Schedule
ITEM 6. (B) REPORTS ON FORM 8-K
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 11, 2000
BINGHAM FINANCIAL SERVICES CORPORATION
By: /s/ Ronald A. Klein
-------------
Ronald A. Klein, Chief Executive Officer
20
<PAGE> 21
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.1 Form of Registration Rights Agreement dated April 27, 1999
with respect to an aggregate of 800,330 shares
4.2 Bingham Financial Services Corporation Second Amended and
Restated 1997 Stock Option Plan
10.1 Warehousing Credit and Security Agreement dated as of
April 1, 2000 among Bloomfield Servicing Company, L.L.C.,
Bloomfield Acceptance Company, L.L.C. and Residential
Funding Corporation
10.2 First Amendment dated as of July 17, 2000 to Warehousing
Credit and Security Agreement dated as of April 1, 2000
among Bloomfield Servicing Company, L.L.C., Bloomfield
Acceptance Company, L.L.C. and Residential Funding
Corporation
10.3 Security Agreement dated December 13, 1999 between Sun
Communities Operating Limited Partnership and Bingham
10.4 Second Amended Demand Promissory Note dated December 13,
1999 executed by Bingham in favor of Sun Communities
Operating Limited Partnership
10.5 Employment Agreement dated January 1, 2000 between Bingham
and Ronald A. Klein
10.6 Second Amended and Restated Master Repurchase Agreement
dated as of March 15, 2000 among Lehman Commercial Paper
Inc., Bloomfield Acceptance Company, LLC, MHFC, Inc., and
Dynex Financial, Inc.
10.7 Amendment No. 1 dated March 16, 2000 to the Second Amended
and Restated Master Repurchase Agreement
10.8 Credit Agreement dated March 31, 2000 among Bingham, Dynex
Financial, Inc., and Michigan National Bank
10.9 Secured Promissory Note dated March 31, 2000 executed by
Bingham and Dynex Financial in favor of Michigan National
Bank
10.10 Security Agreement dated March 31, 2000 between Michigan
National Bank and Dynex Financial, Inc.
10.11 Security Agreement dated March 31, 2000 between Michigan
National Bank and Bingham
27 Financial Data Schedule
</TABLE>
